Question

Are top executives paid too much? A study of CEO compensation revealed that CEO bonuses rose considerably—from 20 percent to 30 percent—even at companies whose revenues or profits dropped or those that reported significant employee layoffs. Such high pay for CEOs at underperforming companies, as well as CEO compensation at companies with stellar results, has raised many questions from investors and others. The highest gap in pay was in 2000. CEO pay at the largest U.S. firms was 376 times higher than that of average workers. The gap has shrunk to only 271 times higher in 2016, but that is still a lot higher than the 59-to-1 ratio in 1989. The Securities and Exchange Commission (SEC) now requires public companies to disclose full details of executive compensation, including salaries, bonuses, pensions, benefits, stock options, and severance and retirement packages.

Even some CEOs question the high levels of CEO pay. Edgar Woolard, Jr., former CEO and chairman of DuPont, thinks so. “CEO pay is driven today primarily by outside consultant surveys,” he says. Companies all want their CEOs to be in the top half, and preferably the top quarter, of all CEOs. This leads to annual increases. He also criticizes the enormous severance packages that company boards give to CEOs that fail. For example, Carly Fiorina of Hewlett-Packard received $20 million when she was fired.

Using a web search tool, locate articles about this topic, and then write responses to the questions in the Ethical Dilemma section below. Be sure to support your arguments and cite your sources.

Ethical Dilemma: Are CEOs entitled to increases in compensation when their company’s financial situation worsens, because their job becomes more challenging? If they fail, are they entitled to huge severance packages for their efforts? Should companies be required to divulge all details of compensation for their highest top managers, and what effect is such disclosure likely to have on executive pay?

Answer 1

Answer:

CEOs are definitely entitled to be paid handsomely for the World with hyper competition, global challenge and Volatility, uncertainty, complexity and ambiguities. However this must be capped within reasonable range and must constitute 70 percent variable pay which is depending on company performance and thus ethically we can achieve high performance and CEO retention both. Usually ethical dilemmas arise when large multinational corporations offer burgeoning severance packages when CEO is either fired which raises questions as to what is upper cap on this. Had the company not offered such extremely high severance package there could be potential lawsuit filed by CEO against companies which can cause brand damage and punitive losses and thus remains an ethical dilemma. References: What do CEOs do all day long to deserve their pay, by Jana Kasperkevic, 2018, The Marketplace. Yes, companies should be required to divulge all details of compensation for their highest top managers. This article analyses the relationship between CEO salaries and organizational performance for the 280 companies listed on the New York Stock Exchange from 2006 to 2009. Aims to influence the administration of formal reparations. Subsequently, the terms of the directors loan are secured by an audit of what is written about the executive's connection to the salary in addition to the firm's performance. Then again, the bigger the company, the greater the temptation will be to take away a set of capabilities that may not be available to directors.

By all accounts, this seems to be the next most important variable, indicating that either the executive has gained more education and skills after some time in the position or he has gained more control over the board of directors choosing the salary level. CEO, this is probably a mixture of two. Beta is unremarkable and there are negative signs that are incompatible with the expectation that the greater the risk the CEO accepts his compensation. The organizational performance variables are ROE with positive and large coefficients. This is foreseen with the introduction that CEO salaries are paid relative to how the organization operates. Next, the document outlines the success of the corporate administration in executing the remuneration on the basis of the CEO and examining the various parts of the CEO's bonus, along with questions regarding each component. The review period is after the submission of the Sarbanes Oxley Act and following the confirmation of the SEC of the Corporate Governance Rules, which affects the official compensation of the New York Stock Exchange. This paper tests the relationship between CEO pay and organizational performance for 280 New York listed companies over the period 2006 to 2009. Distribution for 2006-2009 was after the Sarbanes Act was selected, Oxley and after the adoption of the Corporate Governance Act, which affected the formal settlement of the New York Stock Exchange.